3 Telltale Signs That Scream "Sell that Stock!"

by Patrik
(Paris, France)

Unloading a stock that has been part of your portfolio for quite some time can be verytough. In addition, it is really quite common for investors to stay invested in a well-runcompany for several years. However, there will come some point when the decision to sell isan imperative because if buying a stock at the right price is an opportunity to profit; sellingit at the right price locks in that profit.

There are many instances when you are tempted to sell your shares of a company. Marketvolatility is the all too common reason that prompts an investor to sell his shares. However,fear or any emotion makes the worst basis for any investment decision. Good decisionsstems from sound judgment and sound judgment dictates that you should be on the lookoutfor telltale signs that tell you it is the perfect time to sell.

Change of Company’s Fundamentals

An early telltale sign that tells you it’s best to cash in on your investment in a particularcompany is the company’s financial statement itself. Additionally, relevant reports ofthe company’s management and health should also be considered. For example, if thecompany’s top management is fired, has quit; or if the company keeps changing itsmanagement. These signs tell you that the company has some internal problems andtherefore, it doesn’t have the right management structure to go the distance. Other signslike stagnant earnings; failure to procure the necessary approvals of its products fromregulatory bodies; and cash-flow problems are early signs of impending doom.

Its Fundamentals Does Not Justify Its Price

If the stock’s price may soar but there isn’t much change in its fundamentals that justifythe price movement; that could be a telling sign that it’s the right time to sell. The companymay be the subject of unrealistic investor’s expectation and it is hard to sustain suchgrowth. A good look of the company’s price and earnings ratio would tell if the company’sfundamentals justify its price movement. If the ratio is much higher than other companiesin the same industry, it’s high time to take advantage of the stocks’ high price since it’smost likely that it won’t stay high for long.

Inexplicable Sell-Off by Top Management

Top executives of the company often owns large portion of the company’s stocks. If oneexecutive sells some of his shares, he might want to diversify or he may have his ownreasons for his decisions. However, if several executives begin selling large portion oftheir shares, that would tell you something is amiss. It should get you thinking that if topexecutives are selling their shares, it might be the best time for you to do the same.

A good investing strategy includes clearly defined entry and exit points. And while you couldhave your own personal reasons to sell some of your holdings; it’s also very important thatyou be on the lookout for corporate signs that tell you it’s best to get out.

Being on your toes for such signs could spell the difference between substantial profit and loss on your holdings.

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